On March 18, 2019, FINRA censured and fined Corinthian Partners, LLC, together with the firm’s Chairman/President and CCO, for failure to establish, maintain, and enforce a reasonably designed supervisory system, related to the sale of Non-Traditional ETPs (NT-ETPs) to customers. According to FINRA’s Regulatory Notice 09-31, NT-ETPs “are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.” Due to NT-ETPs’ inherent risks and the complexity of the products, it is required that firms oversee the transactions and monitor for unsuitability and risks particular to non-traditional ETPs such as the risk incurred by long-term holding of a product that resets daily.
The investigation revealed that a sole registered representative recommended that his customers invest almost exclusively in NT-EFTPs and hold them for extended periods of time. The registered representative solicited 1,910 purchases totaling $279 million and 1,663 transactions that amounted to $275 million in sales of NT-ETPs. These transactions generated approximately $890,000 in commissions, which represented a significant portion of the firm’s revenue. Despite this activity, the firm lacked a reasonably-designed supervisory system and WSPs to ensure suitability of recommendations, failed to ensure that new account documents were filled out completely and accurately. Additionally, the firm’s principals admitted that they had joint responsibility for establishing, maintaining and enforcing the firm’s supervisory system and its WSPs, they failed to identify and investigate red flags of unsuitable trading.
Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a reasonably designed supervisory system. Corinthian Partners, LLC was censured and fined $30,000, the firm’s principals were also fined and suspended from association with any FINRA member in any capacity for 30 business days.
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